Sound Off: What Cramer said

Love him or hate him, Cramer has some important information for investors

Last week, a reader emailed and asked what I thought about Jim Cramer. He was referring to the recent controversy involving comments that Cramer made in an interview with TheStreet.com. (See the Slate story by Henry Blodget — a warning of “career suicide” by someone who’s an expert on the subject — here.) The actual videos have been removed, but a transcript is available here.

My response, which I expound on in my column today, is that Cramer performed a service for investors by reminding them that Wall Street will always make money at the expense of the little guy.

Sure, Cramer seems to offer a primer on how to manipulate markets, but how many retail investors could afford to do what he’s talking about? The bigger problem is that Cramer seems to talk out of both sides of his mouth. On the one hand, he tries to warn investors about the perils of the market, on the other he’s running the circus that is “Mad Money” encouraging people to jump into that market with abandon. I’m not a fan of the show because it minimizes the dangers for investors that Cramer himself has helped expose.

Did Cramer manipulate the market? Or did he provide a service by showing investors how the market can work against them? Does any of this threaten his standing on CNBC?

4 Responses

What’s the big deal? I am sure the guy who bought a couple of barrels of crude last night at $68 is happy because his net long position is now up a $1.5 from yesterday’s close. Is anyone going to suggest manipulation? The more investors understand how the market works, the better off they will be. The buy and hold mentality is becoming ancient, along with long only mutual funds I am not advocating day trading, but every investor needs to understand that their decision to sell when a stock falls and buy when it runs up is the exact opposite of what the street is doing.

Cramer points out a flaw in our “market system”. Look at it this way, when people were lined up to get XBOX and other tech stuff before stores opened the price didn’t change. Nor does it change if I go to doctor and stand outside 30 minutes before he/she opens. Basically, I’m saying why does the market accept / allow “pre-market” orders at all. If they are going to do so, then it should be 24/7 and as news hits the street at 2AM Houston time, someone / anyone should be able to place a real-time trade. Of course, by waiting to handle / enter orders at “the open” more volitility may happen, but so be it – it’s called risk. Cramer’s tatic reminds me of “pump and dump”.

I am getting increasingly concerned with business writers substituting the word “investor” for “speculator”, and it is giving rise to a lot of reader misunderstanding about markets and how they work. Someone who “buys and HOLDS” a diversified portfolio of stocks and/or mutual funds is an investor. The investor is essentially counting on the stock he purchases to appreciate “over time” as a functions of dividend payouts and earnings growth. Any strategy other than a “buy and hold” is by its very nature speculative and has nothing to do with “investing.” And yes, the little guy doesn’t stand a chance if he enters the speculative arena. But frankly, the professinal “speculator” doesn’t stand a chance against a long-term buy and hold “investor” either. I’ve spent a life-time doing the dull, unglamorous business of buying and holding a balanced portfolio of low cost index funds, bonds, and cash – boring stuff. And I’ll put my long-term growth record up against any of the pros. Some will beat me for sure; but I’ll beat most. Why? Because “market timing” is a fools game (you will guess wrong more often than right) and the expenses of trading will substantially eat into a portfolio over the long haul.

Please do your readers a favor and give them ocassional reminders of the difference between investors and speculators. There is no reason the little guy needs to feel intimidated or over his head. He just has to refuse to play the game.